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Everything you need to know about Real Estate ROI in Dubai

Posted by Homesphere Real Estate on February 27, 2023

If you’ve ever considered purchasing a home in Dubai, you’ve probably heard of the term real estate Return on Investment (ROI). In fact, ROI is the primary consideration for both novice and experienced investors! It’s a powerful tool for determining whether or not a particular property is a good investment. But, exactly, what is ROI in real estate? How is it determined? Where do you put your money to get the best return? This blog will explain everything you need to know about real estate ROI in Dubai.

Dubai real estate can be highly profitable for investing in residential, commercial, and mixed-use developments where properties can range from small apartments to sprawling luxury estates. The Dubai real estate market is constantly expanding, which means there is always room for new investors. To maximize your return on investment, carefully research different real estate opportunities in Dubai and seek the advice of an expert.

What is Real Estate ROI in Dubai?

ROI is a critical metric for determining the profitability of an investment, or in other words, the expected returns relative to the cost of the property. Essentially, the ROI assists you in determining whether a specific property is likely to generate healthy returns and serve as a good investment opportunity or not.

Simply take the gain on the investment, subtract the cost, and divide that number by the cost of the investment to calculate the ROI. The formula can be as straightforward as this:

ROI = (Gain – Cost) / Cost

If you invested $180,000 in a house and sold it a few years later for $330,000, your ROI would be as follows:

(330000 – 180000) / 180000 = 0.83 = 83%

What factors should be considered when calculating ROI?

The formula may appear simple to calculate at this point. When calculating real estate ROI, however, a number of variables must be considered. The amount of money borrowed and the interest rate, for example, can have a significant impact on the cost of your real estate investment and, ultimately, the overall ROI. Furthermore, if the following factors are not considered, they may complicate your real estate ROI calculations:

  • Property Details: Repair costs, property value, number of rooms, square footage, and other important factors are all included in the property details.
  • Payment Details: These include loan terms, down payment, and interest rates.
  • Rental Income Details: Details on real estate rental income depending on the expected vacancy rate, the type of rental period (short-term or long-term), and monthly/yearly expenses. (For example, property management fees, utilities, maintenance, service fees, insurance premiums, and taxes).
  • NOI: Net Operating Income, or NOI, is calculated simply by subtracting: gross income from property operating expenses.
  • Capitalization Rate: It allows you to compare different investment opportunities. It refers to the rate of return. You can figure it out by dividing your NOI by the purchase price of the property.
  • Annual Cash Flow: This is essentially how much you will profit or lose from a property after expenses are deducted.

As you’re ideally looking for a residential house that can bring in a second income for you, we’ve provided rental information. Consequently, having all of this knowledge will make it simple for you to determine whether this property is a wise investment in light of your long-term goals. When evaluating the return on investment for real estate, keep in mind that there is no right or wrong answer.

Different people favor risk at different levels. Even while a property could seem to have a great potential for rental income, there might be additional fees or hidden costs that you were unaware of. Sometimes rent increases more quickly than the value of the property, which lowers your rental revenue. Therefore, it all depends on what you want to accomplish. 

How to achieve high ROI?

The following types of properties generated a higher real estate yield and were more profitable than others.

  • Apartments Vs. Villas: Apartments often offer better rental returns than townhouses or villas due to Dubai’s highly mobile, middle-class population. Due to the fact that they are just beginning their jobs, expats frequently search for rental apartments. Apartments make excellent holiday homes because of their central location.
  • Ready vs. off-plan properties: According to Gulf News, individual investors will favor off-plan buildings in 2023. Whether you are investing in a home that has not yet been built or one that has, it is imperative to carry out a competitive market study (CMA). You may get a broad notion of whether you’re getting a good deal or not by looking at the recent sales prices of comparable houses in the market. You can get a better idea of the rental income you can expect by looking at the rental prices of nearby homes that are comparable to the one in which you plan to invest.
  • Smaller-sized apartments vs. larger apartments: Apartments with a studio or one-bedroom perform better than larger homes. Studios and one-bedroom apartments with established infrastructure in reasonably priced neighborhoods near necessary amenities are highly valued by investors. Furthermore, because the bulk of Dubai’s population can afford to purchase these units, smaller units sell more quickly and offer better value.
  • Prime Vs. affordable areas: Affordable neighborhoods, like JVC in Dubai, frequently outperform. As the apartments are of such good quality and are so reasonably priced, many are interested in investing in real estate in JVC. Properties in such places are more likely to produce high rental yields as long-term rentals compared to premier areas.

The Bottom Line

Depending on what you decide, your real estate ROI will change. To properly plan the investments, investors must be aware of the various elements affecting ROI calculations. The property and its location are fully disclosed to investors by one of the Best Real Estate Companies in Dubai, Homesphere. You can approach us for real estate investment calculations to predict your profits and buy properties in Dubai

What are you waiting for then? Get ready to invest in the best developments of Dubai real estate. 

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